Economies cannot be run on punitive taxes

The decision by government to announce a suspension of withholding tax on farmers is not enough; our party is of the view that government must implement a holistic tax reform strategy.

It is now clear that the government has failed running this economy especially on the part of financing the obligations of the state coupled with extra demands of patronage.

As a result the government has resorted to creating a robber state surviving on retributive tax to fund the luxury of Ministers who roll in fuel guzzling SUVs, send their kinds abroad for education, fly out each time they catch flu and go shopping for basic stuff in Sandton.  

The People's Democratic Party is of the view that imposition of taxes on tobacco farmers was a retrogressive move which a caring government would not have taken in the first place.

The argument presented by government is that the law has always provided for the tax since 2004.While we agree that withholding tax has been existent for over a decade it is prudent to note that the tax previously was only levied against special circumstances.

During the GNU it was only on special categories like foreigners and untraceable individuals, the selected circumstances were such that the revenue authority would not possibly make a follow up.   

Our concern was also concerned that most of the tobacco farmers no matter the scale operate businesses registered as companies therefore they are supposed to be taxed as corporates. Corporate tax is levied on net income; on the contrary withholding tax is garnished on gross income oblivious of the expenses that the farmer would have incurred.

As a matter of fact to produce tobacco, the farmer incurs huge costs buying inputs including chemicals, seed, equipment and insurance. Taxing the farmers without factoring these factors will only result in them failing to produce at a similar scale or expand in the following season. Many individuals already have their money withheld by the floors therefore must be reimbursed.  

The Minister of Agriculture says he only managed to negotiate for this farming season which basically means if Chinamasa wakes up on the wrong side of bed like he always does the tax can come back again even before the end of the month.

Withholding tax in an environment manned by reckless leaders also works against the poor; in this case it is largely the new small scale grower who cannot employ an expert to do their profit and loss accounts.

Most of the seasoned business people who are said to be tax compliant armed with a tax clearance certificate hardly pay any tax. They have capacity to trick the system by declaring a loss time and again; the state is therefore guilt for punishing the innocent.

The idea of withholding tax is just but a tip of an iceberg, varying kinds of repressive taxes have been introduced by the government.

Recently the government imposed tax on meat and cereals resulting in the products' prices ballooning, dealing a further blow to an already choking aggregate demand.

Chinamasa also imposed tax on the informal sector in a desperate bid to milk the suffering working people who are trying to eke a living owing to the state's failure to create decent jobs.

The government has also hiked duty on so many items and reduced the duty free rebate further complicating lives of the people who in any case have low disposable income.

All these taxes including the one on juice cards have just but made this country the highest taxing economies. The ratio of revenue to GDP, standing at around 35% is one of the highest in Southern Africa.  Chinamasa's desire to deal with his failure to expand fiscal space lacks the logic of basic Keynesian economics.

The People's Democratic Party is committed to providing thought leadership; in that regard we suggest the following solutions to Chinamasa's headache.

1. Focus on supply side solutions to expand revenue base through establishment of a fund specifically designed to deal with depressed industries. In the Holistic Program for Economic Transformation (HOPE) we talk about a stimulus package, under a fund, the Zimbabwe Emergency Recovery Fund (ZERF) targeted at infrastructure and reindustrialization with a view of ensuring that  "the economy spends its way out of the recession"
2. The government must reward the productive sector buy cutting taxis to ensure expansion especially on the labour intensive sectors.
3. The government can create fiscal legroom by retrenching expenditure especially on state travel and ghost workers in the civil service.
4.  Ensure the tobacco industry among others shift from exporting the raw leaf, value addition will create more jobs and increase revenue through the export of finished products.
5. Encourage spending to lift the economy out of the U-Shaped depression which has been around for over three years.
6. Strengthening tax administration through, among other things the modernisation of the Zimbabwe Revenue Authority (ZIMRA).
7. The modernisation of the Income Tax Act so that among other things, the basis of taxation is source and not residence.
8. A departure from a regime of direct taxation to a regime of progressive taxation.
9. Establishment of an efficient tax regime is essential. Zimbabwe loses millions of dollars in tax avoidance, tax evasion and blatant corruption at its border posts.
10. Widening of the tax base through the formalisation of the informal sector and the growth of SMEs.

 
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